Clergy Tax Guide

For IRS purposes, ministers are religious leaders from any group, be it Christian, Jewish, Muslim or otherwise.

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Whether you qualify as a "minister" according to the IRS can affect tax benefits, Social Security taxes and whether you are exempt from income tax withholding. We'll take a close look at IRS Publication 517 for these definitions.

According to the IRS, ministers are "individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination." Notice that the minister could be that of any kind of religious body — be it Christian, Jewish, Muslim or otherwise. It also depends on the functions you perform. The IRS continues, "Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination."

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Confusion might arise depending on the language the religion uses for designating different types of ministers. The IRS attempts to clear that confusion by saying, "If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes."

As we mentioned earlier, the IRS states that ministerial services are subject to self-employment tax. Ministerial services refers to "services you perform in the exercise of your ministry," including "performing sacerdotal functions," "conducting religious worship" and "controlling, conducting, and maintaining religious organizations." In addition, ministerial services can include nonsacerdotal functions for nonreligious organizations "if the services are assigned or designated by your church." Furthermore, ministerial services can include sacerdotal functions not assigned by your church.

Services that don't qualify as ministerial services are subject to FICA, not SECA. One example would be nonsacerdotal services for nonreligious organizations that are not assigned by the church. However, it can also include sacerdotal services performed as a chaplain in the Armed Forces or in a government-owned hospital. Check IRS Publication 517 for more details.

Exemption from Self-Employment Tax

In some cases, the IRS can grant an exemption from self-employment tax if the individual is conscientiously or religiously opposed to accepting public insurance. Once you request exemption, you must receive authorization from the IRS and keep it for your records. But this does not apply to income received from non-ministerial services. Once granted, this is exemption is irrevocable, and the minister will not receive Social Security or Medicare benefits for retirement if he or she doesn't have qualifying credits (e.g., from another job).